What Is A Cryptocurrency?
Cryptocurrencies are a medium of exchange like rupees and US dollars, but they are in digital form and Use cryptography to control the creation of currency units and confirm foreign currency exchange. 2021 was the biggest year for cryptocurrencies. Bitcoin was already popular, but over the past 12 months, more adoption has been seen in other cryptocurrencies such as Ethereum, Cardona, Dogecoin, and even distant sects such as the Shiba Inu.
In traditional financial transactions where the two parties use fiat money, a third-party organization (usually a central bank) verifies that the money is genuine and records the transaction. Cryptocurrencies Allow a chain of a private computer-Always functioning to authenticate transactions through a complex cryptographic puzzle solution.
How are cryptocurrencies purchased?
There are two possibilities. One is to buy from someone and the other is to mine new crypto coins.
Purchases from someone are usually made in either exchange-based or peer-to-peer transactions.
For Indians, the easiest way to invest or trade cryptocurrencies was to use one of the many exchanges and trading platforms operating in India. These include WazirX, CoinDCX, CoinSwitch Kuber, Zebpay, Bitbns, Giottus, and more.
To trade or invest in INR and cryptocurrencies, the user must complete the KYC process and register with one of the exchanges.
Next, users who purchase crypto for the first time need to load the money of the INR into the wallet of the crypto exchange. Cryptocurrency wallets are identified by a unique address represented by a randomly generated combination of numbers and letters.
There are two ways to load funds into a cryptocurrency wallet: online banking or an e-wallet.
This is where barriers to entry first occur.
Despite the Supreme Court’s order overturning the RBI policy prohibiting banks from using the system for cryptocurrency transactions, some major banks do not provide financial infrastructure for crypto investment or transactions.
Of the e-wallets operating in countries, only MobiKwik is supported on platforms such as WazirX and CoinDCX.
When the transaction is completed, the balance of the purchased cryptocurrency will be reflected in the wallet of the exchange.
What Happened With Budget 2022?
Finance Minister Nirmala Sitharaman has effectively legally licensed cryptocurrencies, calling them “digital assets” rather than currencies, and imposing a 30% tax on the income earned from transactions.
Her announcement at the budget presentation largely ends uncertainty about the future of Indian cryptocurrencies.
The day after Chief Economic Advisor Sanjeev Sanyal said the government would take a balanced stance on cryptocurrencies.
What About The Crypto Bill?
India’s booming crypto market was shaken at the end of last year when the Modi government proposed at a parliamentary winter meeting, especially to introduce a bill banning all private cryptocurrencies in the country.
The bill was not introduced, but government sources suggest that each time the bill is introduced, it will be referred to the Parliamentary Standing Committee for deliberations with stakeholders.
According to Purushottam Anand, the founder of the blockchain law firm Crypto Legal
Income tax does not correspond to the method of earning income, so taxing cryptocurrency income does not necessarily explicitly legalize cryptocurrency.
Income from either legal or illegal activities may be taxed under the Income Tax Act. “But in a broader context, certain tax provisions for cryptocurrencies are a step towards legalization.”
The government does not legalize cryptography under financial law, but it does tax the profits from it. Harry Parikh, Associate Partner of BDO India, said: In addition, it is highly unlikely that the government will impose taxes on cryptocurrency transactions and introduce bills that make cryptocurrencies illegal, Anand said.
Taxing cryptocurrencies does not give them legal status in the country, It is the sovereign right of the country to tax cryptocurrency transactions. However, the official position on regulation will only come after ongoing consultations have been completed, the Finance Minister said.
Under standard income tax rules, profits from cryptocurrency transactions are taxed as (i) business income or (ii) capital gains. This classification depends on the investor’s intent and the nature of these transactions.
Due to frequent and high-volume transactions, profits from cryptocurrency transactions are taxed as “business income”.
However, if the main purpose of ownership is to profit from a long-term valuation on fewer transactions, they are taxed as a “return on investment”.